united states district court southern district of … · 2020-01-08 · united states district...

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

IN RE CELADON GROUP, INC. SECURITIES LITIGATION

No. 17-cv-02828-JFK

MEMORANDUM OF LAW IN SUPPORT OF LEAD PLAINTIFFS’ MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT AND

APPROVAL OF PLAN OF ALLOCATION

Case 1:17-cv-02828-JFK Document 68 Filed 12/12/18 of 34

TABLE OF CONTENTS

TABLE OF AUTHORITIES .......................................................................................................... ii

PRELIMINARY STATEMENT .....................................................................................................1

ARGUMENT ...................................................................................................................................3

I. THE PROPOSED SETTLEMENT IS FAIR, REASONABLE, AND ADEQUATE, AND WARRANTS FINAL APPROVAL ...................................................3

A. The Law Favors and Encourages Settlement of Class Action Litigation ................3

B. The Standards for Final Approval ............................................................................4

C. The Settlement Was Reached after Robust Arm’s-Length Negotiations, Is Procedurally Fair, and Is Entitled to a Presumption of Reasonableness ..................5

D. Application of the Second Circuit’s Grinnell Factors Supports Approval of the Settlement as Substantively Fair, Reasonable, and Adequate ...........................6

1. The Complexity, Expense, and Likely Duration of the Litigation Support Approval of the Settlement ............................................................7

2. The Reaction of the Settlement Class to the Settlement ..............................9

3. The Stage of the Proceedings and the Amount of Information Available to Counsel Support Approval of the Settlement ..........................9

4. The Risks of Establishing Liability and Damages Support Approval of the Settlement ........................................................................11

(a) Risks to Proving Liability ..............................................................11

(b) Risks Related to Loss Causation and Damages .............................14

5. The Risks of Maintaining Class Certification ............................................16

6. The Ability of Defendants to Withstand a Greater Judgment ....................17

7. The Range of Reasonableness of the Settlement Amount in Light of the Best Possible Recovery and all the Attendant Risks of Litigation Support Approval of the Settlement ..........................................18

E. Application of the Factors Identified in the Amendments to Rule 23(e)(2) Support Approval of the Settlement as Fair, Reasonable, and Adequate ..............19


ii

1. Lead Plaintiffs and Lead Counsel Have Adequately Represented the Settlement Class ...................................................................................19

2. The Settlement is the Result of Arm’s-Length Negotiations .....................20

3. The Relief Provided to the Settlement Class is Adequate .........................20

II. THE PLAN OF ALLOCATION FOR THE PROCEEDS OF THE SETTLEMENT IS FAIR AND REASONABLE AND SHOULD BE APPROVED ......................................................................................................................22

III. NOTICE TO THE CLASS SATISFIED THE REQUIREMENTS OF RULE 23 AND DUE PROCESS .......................................................................................................24

CONCLUSION ..............................................................................................................................25


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TABLE OF AUTHORITIES

Page(s)

Cases

In re Advanced Battery Techs. Inc. Sec. Litig., 298 F.R.D. 171 (S.D.N.Y. 2014) ...............................................................................................4

In re Alloy, Inc. Sec. Litig., No. 03-1597, 2004 WL 2750089 (S.D.N.Y. Dec. 2, 2004) .....................................................11

Anixter v. Home-Stake Prod. Co., 77 F.3d 1215 (10th Cir. 1996) ...................................................................................................8

In re AOL Time Warner Inc., No. 02 cv 5575, 2006 WL 903236 (S.D.N.Y. Apr. 6, 2006) ...................................................11

In re Apollo Grp., Inc. Sec. Litig., No. CV-04-2147-PHX-JAT, 2008 WL 3072731 (D. Ariz. Aug. 4, 2008), rev’d, No. 08-16971, 2010 WL 5927988 (9th Cir. June 23, 2010) ...........................................8

In re Bear Stearns, Inc. Sec. Derivative & ERISA Litig., 909 F. Supp. 2d 259 (S.D.N.Y. 2012) .............................................................................. passim

In re Citigroup Inc. Sec. Litig., No. 09 MD 2070 (SHS), 2014 WL 2112136 (S.D.N.Y. May 20, 2014) ...................................4

City of Brockton Ret. Sys. v. Shaw Grp. Inc., 540 F. Supp. 2d 464 (S.D.N.Y. 2008) ......................................................................................13

City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974), abrogated on other grounds by, Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000) ................. passim

City of Providence v. Aeropostale Inc. et al., No. 11 civ. 7132, 2014 WL 1883494 (S.D.N.Y. May 9, 2014), aff’d, Arbuthnot v. Pierson, 607 F. App’x. 73 (2d Cir. 2015) ...................................................6

In re DRDGOLD Ltd. Sec. Litig., 472 F. Supp. 2d 562 (S.D.N.Y. 2007) ......................................................................................13

Ebbert v. Nassau Cty., No. CV 05-5445 AKT, 2011 WL 6826121 (E.D.N.Y. Dec. 22, 2011) ...................................16

In re Facebook, Inc. IPO Sec. & Derivative Litig., No. MDL 12-2389, 2015 WL 6971424 (S.D.N.Y. Nov. 9, 2015), aff’d, 674 F. App’x. 37 (2d Cir. 2016) ...................................................................................5, 7


iv

In re FLAG Telecom Holdings, Ltd. Sec. Litig., No. 02-CV-3400 (CM)(PED), 2010 WL 4537550 (S.D.N.Y. Nov. 8, 2010) ..................7, 9, 22

In re Giant Interactive Grp., Inc. Sec. Litig., 279 F.R.D. 151 (S.D.N.Y. 2011) .......................................................................................23, 24

In re Gilat Satellite Networks, Ltd., No. CV-02-1510, 2007 WL 1191048 (E.D.N.Y. Apr. 19, 2007) ..............................................7

In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436 (S.D.N.Y. 2004) ..................................................................................... passim

IBEW Local Union No. 58 Pension Trust Fund & Annuity Fund v. Royal Bank of Scotland Grp. PLC, 783 F.3d 383 (2d Cir. 2015).....................................................................................................12

In re IMAX Sec. Litig., 283 F.R.D. 178 (S.D.N.Y. 2012) ...................................................................................4, 15, 22

Ingles v. Toro, 438 F. Supp. 2d 203 (S.D.N.Y. 2006) ......................................................................................16

In re Initial Pub. Offering Sec. Litig., 671 F. Supp. 2d 467 (S.D.N.Y. 2009) ..................................................................................7, 22

Int’l Bhd of Elec. Workers Local 697 Pension Fund v. Int’l Game Tech., Inc., No. 3:09-cv-00419, 2012 WL 5199742 (D. Nev. Oct. 19, 2012) ............................................19

Maley v. Del Global Techs. Corp., 186 F. Supp. 2d 358 (S.D.N.Y. 2002) ................................................................................10, 17

In re Marsh & McLennan Cos. Sec. Litig., No. 04 Civ. 8144 (CM), 2009 WL 5178546 (S.D.N.Y. Dec. 23, 2009) ..................................25

In re Marsh ERISA Litig., 265 F.R.D. 128 (S.D.N.Y. 2010) .............................................................................................24

In re Merrill Lynch & Co. Research Reports Sec. Litig., 246 F.R.D. 156 (S.D.N.Y. 2007) .............................................................................................18

In re Merrill Lynch & Co. Research Reports Sec. Litig., No. 02 MDL 1484 (JFK), 2007 WL 313474 (S.D.N.Y. Feb. 1, 2007) ....................................18

In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465 (S.D.N.Y. 1998) ...............................................................................................6

Newman v. Stein, 464 F.2d 689 (2d Cir. 1972).....................................................................................................18


v

In re Omnivision Techs., Inc., 559 F. Supp. 2d 1036 (N.D. Cal. 2008) ...................................................................................19

In re PaineWebber Ltd. P’ships Litig., 171 F.R.D. 104 (S.D.N.Y. 1997), aff’d, 117 F.3d 721 (2d Cir. 1997) ...............................18, 22

Plumbers & Pipefitters Local Union No. 719 Pension Tr. Fund v. Conseco Inc., No. 09-6966, 2011 WL 1198712 (S.D.N.Y. Mar. 30, 2011) .............................................12, 13

In re Polaroid ERISA Litig., 240 F.R.D. 65 (S.D.N.Y. 2006) ...............................................................................................20

Prasker v. Asia Five Eight LLC, No. 08 Civ. 5811(MGC), 2010 WL 476009 (S.D.N.Y. Jan. 6, 2010) .....................................17

Robbins v. Koger Props., Inc., 116 F.3d 1441 (11th Cir. 1997) .................................................................................................8

Shapiro v. JPMorgan Chase & Co., No. 11 Civ. 8331, 2014 WL 1224666 (S.D.N.Y. Mar. 24, 2014) .............................................6

Strougo ex rel. Brazilian Equity Fund, Inc. v. Bassini, 258 F. Supp. 2d 254 (S.D.N.Y. 2003) ........................................................................................8

Teachers Ret. Sys. of La. v. A.C.L.N., Ltd., No. 01-Civ-11814 (MP), 2004 WL 1087261 (S.D.N.Y. May 14, 2004) ...........................11, 17

In re Telik, Inc. Sec. Litig., 576 F. Supp. 2d 570 (S.D.N.Y. 2008) ............................................................................8, 12, 15

In re Veeco Instruments Inc. Sec. Litig., No. 05 MDL 01695 (CM), 2007 WL 4115809 (S.D.N.Y. Nov. 7, 2007).. ...........................6, 9

Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96 (2d Cir. 2005)...........................................................................................3, 4, 5, 24

In re Warner Chilcott Ltd. Sec. Litig., No. 06 Civ. 11515, 2009 WL 2025160 (S.D.N.Y. July 10, 2009) ............................................9

White v. First Am. Registry, Inc., No. 04 Civ. 1611 (LAK), 2007 WL 703926 (S.D.N.Y. Mar. 7, 2007) ......................................7

Wyche v. Advanced Drainage Sys., Inc., No. 15 CIV. 5955 (KPF), 2017 WL 971805 (S.D.N.Y. Mar. 10, 2017), aff’d, 710 F. App’x. 471 (2d Cir. 2017) ...................................................................................12

Statutes

15 U.S.C. § 78u-4(a)(7) .................................................................................................................25


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15 U.S.C. § 78u-4(e) ......................................................................................................................23

Rules

Fed. R. Civ. P. 23(a) ......................................................................................................................16

Fed. R. Civ. P. 23(b)(3)..................................................................................................................16

Fed. R. Civ. P. 23(c)(1)(C) ............................................................................................................16

Fed. R. Civ. P. 23(c)(2)(B) ............................................................................................................25

Fed. R. Civ. P. 23(e) ..............................................................................................................1, 4, 24

Fed. R. Civ. P. 23(e)(2) ..............................................................................................................4, 19

Fed. R. Civ. P. 23(e)(2)(C) ............................................................................................................20

Fed. R. Civ. P. 23(e)(2)(C)(ii) ........................................................................................................20

Fed. R. Civ. P. 23(e)(2)(C)(iii) ......................................................................................................22

Fed. R. Civ. P. 23(e)(2)(C)(iv) .......................................................................................................22

Fed. R. Civ. P. 23(e)(3) ..............................................................................................................5, 22


Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, Court-appointed Lead

Plaintiffs Greater Pennsylvania Carpenters’ Pension Fund (“Greater Pennsylvania”) and

Arkansas Teacher Retirement System (“ATRS”) (collectively, “Lead Plaintiffs”), on behalf of

themselves and the other members of the Settlement Class, respectfully submit this

memorandum of law in support of their motion for final approval of the proposed Settlement of

the above-captioned action (the “Action”), approval of the proposed plan of allocation of the

proceeds of the Settlement (the “Plan of Allocation”), and final certification of the Settlement

Class.1

PRELIMINARY STATEMENT

As detailed in the Stipulation, Celadon Group, Inc. (“Celadon” or “the Company”), and

Bobby L. Peavler (“Peavler”) and Paul A. Will (“Will”) (the “Individual Defendants,” and,

together with Celadon, the “Defendants”) have agreed to settle the claims in the Action and all

Released Claims in exchange for a payment of $5,500,000 in cash. The terms of the Settlement

are set forth in the Stipulation, which was previously filed with the Court. ECF No. 59-1. This

recovery is a favorable result for the Settlement Class and avoids the substantial risks and

expenses of continued litigation, including the risk of recovering less than the Settlement

Amount, or nothing at all.

The Settlement was reached only after Lead Plaintiffs and Lead Counsel had a well-

1 Unless otherwise noted, capitalized terms have the meanings ascribed to them in the Stipulation

and Agreement of Settlement, dated October 3, 2018 (ECF No. 59-1) (the “Stipulation”) or in the Declaration of Carol C. Villegas in Support of (I) Lead Plaintiffs’ Motion for Final Approval of Class Action Settlement and Approval of Plan of Allocation and (II) Lead Counsel’s Motion for an Award of Attorneys’ Fees and Payment of Litigation Expenses (the “Villegas Declaration” or “Villegas Decl.”), filed herewith. Citations to “¶” in this memorandum refer to paragraphs in the Villegas Declaration.

All exhibits herein are annexed to the Villegas Declaration. For clarity, citations to exhibits that themselves have attached exhibits will be referenced as “Ex. ___ - ___.” The first numerical reference is to the designation of the entire exhibit attached to the Villegas Declaration and the second reference is to the exhibit designation within the exhibit itself.


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developed understanding of the strengths and weaknesses of the claims. As more fully described

in the Villegas Declaration,2 by the time the Settlement was agreed to, Lead Counsel had, among

other things: (i) conducted a thorough investigation into the alleged misconduct, which included

consulting with experienced experts in the fields of damages and accounting, analyzing the

Company’s historical financial statements with the aid of Lead Plaintiffs’ accounting expert,

conducting 12 interviews of former Celadon employees and other potential witnesses, and

reviewing the public record; (ii) drafted and filed a detailed consolidated complaint (the

“Complaint”); (iii) reviewed 3,600 pages of documents produced by Defendants in connection

with the mediation; (iv) exchanged detailed mediation statements with Defendants and engaged

in vigorous arm’s-length settlement negotiations; and (v) consulted with bankruptcy counsel.

The Settlement is also the product of extensive arm’s-length negotiations between the Parties,

which included an in-person mediation session under the auspices of a respected and experienced

mediator, Robert Meyer Esq. of JAMS.

The Settlement is a favorable result in light of the risks of continued litigation. While

Lead Plaintiffs and Lead Counsel believe that the claims asserted against Defendants are strong,

they recognize that this Action presented a number of substantial risks, especially in light of

Defendants’ anticipated challenges to scienter, loss causation, and damages. While Lead

Plaintiffs would advance credible counter arguments to Defendants’ liability defenses, they

nonetheless recognize a substantial risk that Defendants’ anticipated motions to dismiss might be

granted in part or in full. Even if Defendants’ motions to dismiss were unsuccessful, Defendants

likely would have continued to press their arguments at summary judgment, at trial, and through

2 The Villegas Declaration is an integral part of this submission and, for the sake of brevity in this

memorandum, the Court is respectfully referred to it for a detailed description of, inter alia: the history of the Action; the nature of the claims asserted; the negotiations leading to the Settlement; and the risks and uncertainties of continued litigation; among other things.


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appeals. These risks are in addition to the genuine risk of a much smaller recovery, or no

recovery at all, given the Company’s precarious financial condition and competing claims to the

proceeds of insurance policies available to pay the claims of the Settlement Class.

In light of these risks, as discussed further below and in the Villegas Declaration, Lead

Plaintiffs respectfully submit that the Settlement is fair, reasonable, and adequate, and warrants

final approval by the Court. See Declaration of James R. Klein, on Behalf of Greater

Pennsylvania (Ex. 1 at ¶¶6, 8) and Declaration of Ron Graves, on Behalf of ATRS (Ex. 2 at ¶¶6,

8).

Additionally, Lead Plaintiffs request that the Court approve the Plan of Allocation, which

was set forth in the Notice sent to Settlement Class Members. The Plan of Allocation, which

was developed by Lead Counsel in consultation with Lead Plaintiffs’ consulting damages expert,

provides a reasonable and equitable method for allocating the Net Settlement Fund among

Settlement Class Members who submit valid claims. The Plan of Allocation is fair and

reasonable, and should likewise be approved.

ARGUMENT

I. THE PROPOSED SETTLEMENT IS FAIR, REASONABLE, AND ADEQUATE, AND WARRANTS FINAL APPROVAL

A. The Law Favors and Encourages Settlement of Class Action Litigation

Public policy favors the settlement of disputed claims among private litigants,

particularly in class actions. See Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d

Cir. 2005) (“Visa”) (“We are mindful of the strong judicial policy in favor of settlements,

particularly in the class action context.”)3. This policy would be well-served by approval of the

Settlement of this complex securities class action, that absent resolution, would consume years of

3 All internal quotations and citations are omitted unless otherwise stated.


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additional time of this Court.

B. The Standards for Final Approval

Rule 23(e) of the Federal Rules of Civil Procedure provides that a class action settlement

must be presented to the Court for approval. The Settlement should be approved if the Court

finds it “fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2). In ruling on final approval of

a class settlement, courts in the Second Circuit have held that a court should examine both the

negotiating process leading to the settlement, and the settlement’s substantive terms. See Visa,

396 F.3d at 116; In re Citigroup Inc. Sec. Litig., No. 09 MD 2070 (SHS), 2014 WL 2112136, at

*2-3 (S.D.N.Y. May 20, 2014); In re IMAX Sec. Litig., 283 F.R.D. 178, 188 (S.D.N.Y. 2012).

The standards governing approval of class action settlements are well established in the

Second Circuit. In City of Detroit v. Grinnell Corp., the Second Circuit held that the following

factors should be considered in evaluating a class action settlement:

(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.

495 F.2d 448, 463 (2d Cir. 1974), abrogated on other grounds by, Goldberger v. Integrated Res.,

Inc., 209 F.3d 43 (2d Cir. 2000), see also Visa, 396 F.3d at 117; In re Advanced Battery Techs.

Inc. Sec. Litig., 298 F.R.D. 171, 175 (S.D.N.Y. 2014); In re Bear Stearns, Inc. Sec. Derivative &

ERISA Litig., 909 F. Supp. 2d 259, 265-66 (S.D.N.Y. 2012).

Additionally, pursuant to the recent amendments to Rule 23(e)(2), a court may approve a

settlement as “fair, reasonable, and adequate” after considering the following four factors, most

of which overlap with the Grinnell factors:


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(A) whether the class representatives and class counsel have adequately represented the class;

(B) whether the proposal was negotiated at arm’s length;

(C) whether the relief provided for the class is adequate, taking into account:

i. the costs, risks, and delay of trial and appeal;

ii. the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims;

iii. the terms of any proposed ward of attorneys’ fees, including timing of payment; and

iv. any agreement required to be identified under Rule 23(e)(3); and

(D) whether the proposal treats class members equitably relative to each other.

For the reasons discussed herein, and in Lead Counsel’s Fee and Expense Application,

the proposed Settlement meets the criteria set forth by the Second Circuit and the federal rules.

C. The Settlement Was Reached after Robust Arm’s-Length Negotiations, Is Procedurally Fair, and Is Entitled to a Presumption of Reasonableness

A settlement is entitled to a “presumption of fairness, adequacy, and reasonableness”

when “reached in arm’s length negotiations between experienced, capable counsel after

meaningful discovery.” Visa, 396 F.3d at 116; In re Facebook, Inc. IPO Sec. & Derivative

Litig., No. MDL 12-2389, 2015 WL 6971424, at *3 (S.D.N.Y. Nov. 9, 2015), aff’d, 674 F.

App’x. 37 (2d Cir. 2016).

The Settlement here merits such a presumption of fairness because it was achieved after

thorough arm’s-length negotiations between well-informed and experienced counsel, under the

supervision of an experienced Mediator, and an extensive investigation into the claims. As a

result, Lead Plaintiffs and Lead Counsel had a well-informed basis for assessing the strength of

the Settlement Class’s claims and Defendants’ defenses when they agreed to settle the Action.


6

The judgment of Lead Counsel—a law firm that is highly experienced in securities class

action litigation—that the Settlement is in the best interests of the Settlement Class is entitled to

“great weight.” City of Providence v. Aeropostale Inc. et al., No. 11 civ. 7132, 2014 WL

1883494, at *5 (S.D.N.Y. May 9, 2014), aff’d, Arbuthnot v. Pierson, 607 F. App’x. 73 (2d Cir.

2015); Shapiro v. JPMorgan Chase & Co., No. 11 Civ. 8331, 2014 WL 1224666, at *2

(S.D.N.Y. Mar. 24, 2014); accord, In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D.

465, 474 (S.D.N.Y. 1998) (courts consistently give “‘great weight’ . . . to the recommendations

of counsel, who are most closely acquainted with the facts of the underlying litigation”).

Moreover, Lead Plaintiffs are sophisticated institutional investors that took an active role in

supervising this litigation, as envisioned by the PSLRA, and strongly endorse the Settlement.

See Exs. 1 and 2. A settlement reached “with the endorsement of a sophisticated institutional

investor . . . is ‘entitled to an even greater presumption of reasonableness.’” In re Veeco

Instruments Inc. Sec. Litig., No. 05 MDL 01695 (CM), 2007 WL 4115809, at *5 (S.D.N.Y. Nov.

7, 2007).

Accordingly, the Settlement is entitled to a presumption of reasonableness.

D. Application of the Second Circuit’s Grinnell Factors Supports Approval of the Settlement as Substantively Fair, Reasonable, and Adequate

The Settlement is also substantively fair, reasonable, and adequate. “In finding that a

settlement is fair, not every factor must weigh in favor of settlement, ‘rather the court should

consider the totality of these factors in light of the particular circumstances.’” In re Global

Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 456 (S.D.N.Y. 2004) (quoting Thompson v.

Metro. Life Ins. Co., 216 F.R.D. 55, 61 (S.D.N.Y. 2003)). Additionally, in deciding whether to

approve a settlement, a court “should not attempt to approximate a litigated determination of the

merits of the case lest the process of determining whether to approve a settlement simply


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substitute one complex, time consuming and expensive litigation for another.” White v. First

Am. Registry, Inc., No. 04 Civ. 1611 (LAK), 2007 WL 703926, at *2 (S.D.N.Y. Mar. 7, 2007).

Here, the Settlement fully satisfies the criteria for approval articulated in Grinnell.

1. The Complexity, Expense, and Likely Duration of the Litigation Support Approval of the Settlement

Securities class actions like this one are by their nature complicated, and district courts in

this Circuit have long recognized that “[a]s a general rule, securities class actions are ‘notably

difficult and notoriously uncertain’ to litigate.” In re Facebook, 2015 WL 6971424, at *3; Bear

Stearns, 909 F. Supp. 2d at 266; In re FLAG Telecom Holdings, Ltd. Sec. Litig., No. 02-CV-3400

(CM)(PED), 2010 WL 4537550, at *15 (S.D.N.Y. Nov. 8, 2010); In re Gilat Satellite Networks,

Ltd., No. CV-02-1510, 2007 WL 1191048, at *10 (E.D.N.Y. Apr. 19, 2007) (“Securities class

actions are generally complex and expensive to prosecute.”).

This case was no exception. As discussed in the Villegas Declaration, this case involved

complex and financially intricate accounting issues related to, among other things, accounting for

trucking assets, the trucking industry and markets, and off-balance sheet transactions with joint

ventures and third-parties. Lead Plaintiffs surviving the motions to dismiss, prevailing on

summary judgment and then achieving a litigated verdict at trial (and sustaining any such verdict

in the appeals that would inevitably ensure) would have been a very complex and risky

undertaking that would have required substantial additional time and expense. See In re Initial

Pub. Offering Sec. Litig., 671 F. Supp. 2d 467, 481 (S.D.N.Y. 2009) (finding that the complexity,

expense and duration of continued litigation supports final approval where, among other things

“motions would be filed raising every possible kind of pre-trial, trial and post-trial issue

conceivable”).

Indeed, the trial of the Action here would have required extensive expert testimony on


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numerous contested issues, including falsity, materiality, causation and damages, all within the

context of nuanced and esoteric accounting issues. Courts routinely observe that these sorts of

disputes—requiring dueling testimony from experts—are particularly difficult for plaintiffs to

litigate. See, e.g., In re Telik, Inc. Sec. Litig., 576 F. Supp. 2d 570, 579-80 (S.D.N.Y. 2008) (in a

“battle of experts, it is virtually impossible to predict with any certainty which testimony would

be credited”).

Of course, even if Lead Plaintiffs had prevailed at trial, it is virtually certain that appeals

would be taken, which would have, at best, substantially delayed any recovery for the Settlement

Class. See Strougo ex rel. Brazilian Equity Fund, Inc. v. Bassini, 258 F. Supp. 2d 254, 261

(S.D.N.Y. 2003) (“[E]ven if a shareholder or class member was willing to assume all the risks of

pursuing the actions through further litigation . . . the passage of time would introduce yet more

risks . . . and would in light of the time value of money, make future recoveries less valuable

than this current recovery.”). At worst, there is always a risk that the verdict could be reversed

by the trial court or on appeal. See, e.g., Robbins v. Koger Props., Inc., 116 F.3d 1441, 1449

(11th Cir. 1997) (reversing $81 million jury verdict and dismissing case with prejudice in

securities action); Anixter v. Home-Stake Prod. Co., 77 F.3d 1215 (10th Cir. 1996) (overturning

plaintiffs’ verdict obtained after two decades of litigation); cf. In re Apollo Grp., Inc. Sec. Litig.,

No. CV-04-2147-PHX-JAT, 2008 WL 3072731 (D. Ariz. Aug. 4, 2008), rev’d, No. 08-16971,

2010 WL 5927988 (9th Cir. June 23, 2010) (trial court overturned unanimous verdict for

plaintiffs, later reinstated by the Ninth Circuit Court of Appeals, and judgment re-entered after

denial of certiorari by the U.S. Supreme Court).

In contrast to costly, lengthy and uncertain litigation, the Settlement provides a

significant and certain recovery of $5.5 million for members of the Settlement Class.


9

Accordingly, this factor supports approval of the Settlement.

2. The Reaction of the Settlement Class to the Settlement

The reaction of the class to a proposed settlement is a significant factor to be weighed in

considering its fairness and adequacy. See, e.g., Bear Stearns, 909 F. Supp. 2d at 266-67; FLAG

Telecom, 2010 WL 4537550, at *16; Veeco, 2007 WL 4115809, at *7.

Pursuant to the Preliminary Approval Order, the Court-appointed Claims Administrator,

Epiq Class Action & Claims Solutions, Inc. (“Epiq”), began mailing copies of the Claim Packet

(consisting of the Notice and Claim Form) to potential Settlement Class Members and nominees

on October 26, 2018. See Declaration of Alexander Villanova, Ex. 5 at ¶¶3-11. As of December

10, 2018, Epiq has mailed 32,458 copies of the Claim Packet to potential Settlement Class

Members. Id. ¶10. In addition, the Summary Notice was published in Investor’s Business Daily

and transmitted over the internet using PR Newswire on November 5, 2018. Id. ¶12.

The Notice set out the essential terms of the Settlement, Lead Counsel’s Fee and Expense

Application, and the proposed Plan of Allocation and informed potential Settlement Class

Members of, among other things, their right to object to any aspect of the Settlement, as well as

the procedure for submitting Claim Forms. While the deadline set by the Court for Settlement

Class Members to object (December 26, 2018) has not yet passed, to date, no objections have

been received. See In re Warner Chilcott Ltd. Sec. Litig., No. 06 Civ. 11515, 2009 WL 2025160,

at *2 (S.D.N.Y. July 10, 2009) (no class member objections since preliminary approval

supported final approval). As provided in the Preliminary Approval Order, Lead Plaintiffs will

file reply papers no later than January 9, 2019 addressing any objections.

3. The Stage of the Proceedings and the Amount of Information Available to Counsel Support Approval of the Settlement

In considering this factor, “the question is whether the parties had adequate information


10

about their claims such that their counsel can intelligently evaluate the merits of plaintiff’s

claims, the strengths of the defenses asserted by defendants, and the value of plaintiffs’ causes of

action for purposes of settlement.” Bear Stearns, 909 F. Supp. 2d at 267. To satisfy this factor,

parties need not have even engaged in formal or extensive discovery. See Maley v. Del Global

Techs. Corp., 186 F. Supp. 2d 358, 363 (S.D.N.Y. 2002).

Here, as detailed in the Villegas Declaration, before filing the consolidated Complaint,

Lead Counsel conducted a robust investigation that included interviews of 12 witnesses (former

employees of Celadon or third parties with relevant knowledge); extensive consultation with

forensic accounting and damages/causation experts; and a thorough review of Celadon’s

historical financial statements, as well as the Company’s public agreements with Element

Financial Corporation (“Element”), and 19th Capital I and II, to trace the respective assets of

these entities, among many other types of documents. Villegas Decl. ¶¶19-26. Lead Counsel

reviewed over 3,600 pages of documents provided by Defendants that included minutes and

presentations of the Company’s Board of Directors, Audit Committee, Nominating and

Corporate Governance Committee, and Compensation Committee, as well as non-public

agreements and financial forecasts relevant to Celadon’s financial condition, prior to

participating in the full-day mediation session. Id. ¶¶ 43-44. Lead Counsel also consulted with

bankruptcy counsel concerning the financial condition and prospects of the Company. Id. ¶40.

Armed with this substantial base of knowledge, Lead Plaintiffs were in a position to

balance the proposed settlement amount with a well-educated assessment of the likelihood of

overcoming the risks of litigation, as well as the Company’s precarious financial condition.

Accordingly, Lead Plaintiffs and Lead Counsel respectfully submit that they had “a clear view of

the strengths and weaknesses of their case[]” and of the range of possible outcomes at trial.


11

Teachers Ret. Sys. of La. v. A.C.L.N., Ltd., No. 01-Civ-11814 (MP), 2004 WL 1087261, at *3

(S.D.N.Y. May 14, 2004). The Court thus should find that this factor also supports approval.

4. The Risks of Establishing Liability and Damages Support Approval of the Settlement

In assessing the fairness, reasonableness, and adequacy of a settlement, courts should

consider the “risks of establishing liability [and] the risks of establishing damages.” Grinnell,

495 F.2d at 463. Securities class actions present hurdles to proving liability that are difficult for

plaintiffs to meet. See In re AOL Time Warner Inc., No. 02 cv 5575, 2006 WL 903236, at *11

(S.D.N.Y. Apr. 6, 2006) (noting that “[t]he difficulty of establishing liability is a common risk of

securities litigation”); In re Alloy, Inc. Sec. Litig., No. 03-1597, 2004 WL 2750089, at *1

(S.D.N.Y. Dec. 2, 2004) (finding that issues present in securities action presented significant

hurdles to proving liability).

Lead Plaintiffs faced very real risks in surmounting Defendants’ anticipated motions to

dismiss and in proving both liability and damages at trial. According to the most recent analysis

of securities class action filings by Cornerstone Research, in recent years, securities class actions

may have become riskier than in prior years. Cornerstone notes that the outcomes of securities

class action filings in 2015 showed higher rates of dismissal than in previous years, and that

filings in 2017 are “on pace to have the highest rate of dismissals within the first year of filing on

record.” See Cornerstone Research, Securities Class Action Filings 2017 Year In Review, at 2

(Cornerstone Research 2018), Ex. 4. From 1997 to 2016, 43% of securities class actions were

dismissed and 50% settled. Id. at 15.

(a) Risks to Proving Liability

While Lead Plaintiffs and Lead Counsel believe that the claims against Defendants are

strong, they recognize that Defendants would have surmounted meaningful defenses to liability


12

that would have presented true obstacles. Absent the Settlement, there was a significant risk that

the Court might have granted Defendants’ anticipated motions to dismiss in part or in whole, or

could find against Lead Plaintiffs in connection with summary judgment and/or at trial.

The principal claims in the Action are based on Section 10(b) of the Securities Exchange

Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder. To establish a claim

under the Exchange Act, “a plaintiff must prove: (1) the defendant made a material

misrepresentation or omission; (2) with scienter; (3) in connection with the purchase or sale of a

security; (4) reliance; (5) economic loss; and (6) loss causation.” IBEW Local Union No. 58

Pension Trust Fund & Annuity Fund v. Royal Bank of Scotland Grp. PLC, 783 F.3d 383, 389 (2d

Cir. 2015). Here, in particular, Defendants would have vigorously challenged Lead Plaintiffs on

scienter and loss causation.

The central allegations of the Action are that an accounting fraud at Celadon concealed

massive liabilities and a deteriorating financial condition at the Company throughout the Class

Period. Defendants’ alleged manipulation resulted in the Company announcing the need to

restate its financials, going back as far as 2014. The Settlement Class faced a significant

challenge in proving that Defendants acted with scienter as “[p]roving a defendant’s state of

mind is hard in any circumstances.” Telik, 576 F. Supp. 2d at, 579. Among other things,

Defendants would have argued that the mere existence of a restatement is insufficient to plead

securities fraud. See, e.g., Wyche v. Advanced Drainage Sys., Inc., No. 15 CIV. 5955 (KPF),

2017 WL 971805, at *16 (S.D.N.Y. Mar. 10, 2017), aff’d, 710 F. App’x. 471 (2d Cir. 2017)

(dismissing Rule 10b–5 claim for failure to plead scienter and rejecting argument that

restatement was sufficient to plead scienter absent “additional supporting allegations indicating

that a defendant had possessed and ignored contrary facts”); Plumbers & Pipefitters Local Union


13

No. 719 Pension Tr. Fund v. Conseco Inc., No. 09-6966, 2011 WL 1198712, at *22-24

(S.D.N.Y. Mar. 30, 2011) (dismissing Rule 10b–5 claim for failure to plead a “strong inference”

of scienter, noting “the fact that the company was required, in 2008, to restate several prior

periods’ financial results does not indicate that the defendants had previously made false

statements with scienter”); City of Brockton Ret. Sys. v. Shaw Grp. Inc., 540 F. Supp. 2d 464

(S.D.N.Y. 2008) (dismissing complaint with prejudice for failure to plead a “strong inference” of

scienter because “it is well settled that mere fact of a restatement of earnings does not support a

strong, or even a weak, inference of scienter”); In re DRDGOLD Ltd. Sec. Litig., 472 F. Supp. 2d

562, 573-74 (S.D.N.Y. 2007) (restatement insufficient to plead a “strong inference” of fraudulent

intent because “the misreported financial information which led to the restatement ‘may have

been caused by intentional fraud or recklessness, [or] could well be the products of negligence or

mismanagement’”). Moreover, they would have argued that Lead Plaintiffs could neither plead

nor prove that Defendants acted with the requisite intent throughout the five year Class Period.

Lead Plaintiffs would of course seek to counter these contentions and would argue that

the Complaint sufficiently alleged, and that the evidence would establish, that Defendants knew

or recklessly disregarded the Company’s accounting failings and deficient internal controls

because, among other reasons, Defendants Peavler and Will each signed the quarterly and yearly

financial reports, all of which assured investors of the effectiveness of the Company’s internal

control over financial reporting. Complaint ¶215.

Finally, even if Lead Plaintiffs were to be successful on the motions to dismiss, many of

these same arguments could have been continued at summary judgment, trial, or on appeal, and,

in the absence of any settlement, presumably would have been. Thus, there were very significant

risks attendant to the continued prosecution of the Action.


14

(b) Risks Related to Loss Causation and Damages

Even if Defendants’ liability could be established, loss causation and damages remains a

“complicated and uncertain process, typically involving conflicting expert opinion about the

difference between the purchase price and [share]s true value absent the alleged fraud.” In re

Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 459 (S.D.N.Y. 2004). In order to resolve

most of the disputed issues regarding loss causation and damages, among others, the Parties

would have had to rely heavily on expert testimony. Though Lead Plaintiffs’ consulting

damages expert estimated maximum class-wide aggregate damages of approximately $87 million

to $120 million, depending on whether, at trial, pre-class period gains are subtracted based on six

alleged corrective events, Defendants and their experts would have made several credible

arguments that the Settlement Class is unable to recover for most or even all of these events

because the events did not reveal new information. ¶¶32-35. Had Defendants succeeded with

these arguments, Defendants estimated that damages would be significantly lower than what

Lead Plaintiffs’ expert estimated.

For example, Lead Plaintiffs anticipate that Defendants would have strenuously argued at

the motion to dismiss stage, and thereafter, that the class period should end on May 1, 2017, the

date on which Celadon warned the public that its auditor did not have a reasonable basis to

support its previously issued reports on Celadon’s 2016-2017 financial statements and that those

financial statements “should not be relied upon.” Defendants would have argued that the class

period cannot extend beyond this date, because Lead Plaintiffs would not be able to show that

any stock decline following this point resulted from the disclosure of curative information that

revealed new material information that had allegedly been concealed from the market. ¶33.

Defendants would also likely have argued that any stock decline following Celadon’s

April 2018 press release resulted from inactionable uncertainties related to Celadon’s financing


15

prospects and the NYSE delisting. Id. Defendants would have argued that the risk of NYSE

delisting was known to the market once Celadon’s 2016-2017 financial statements were publicly

withdrawn on May 1, 2017, and that the securities laws do not provide redress for the

materialization of a known risk. Id. In Lead Counsel’s judgment, these arguments created a

significant risk that class could only recover for the decline following the Company’s disclosure

on May 1, 2017, which would have substantially reduced damages. ¶¶31-35.

Defendants would have also likely argued that the April 2, 2018 press release addressed

several subjects, which would require Lead Plaintiffs to disaggregate which information, if any,

was actually curative of the alleged fraud. For example, Defendants would likely argue that the

disclosure of the $20 million write down related to out-of-market equipment transactions was

small in magnitude, compared to the other items addressed in the press release, and was not

expected to have an ongoing impact on cash flow. Had Defendants succeed with their

disaggregation arguments, Defendants estimated that damages would also be significantly lower

than what Lead Plaintiffs proffered. ¶34.

While Lead Counsel would work extensively with Lead Plaintiffs’ damages expert with a

view towards presenting compelling arguments to the jury and prevailing on these matters at

trial, Defendants would have put forth well-qualified experts of their own who were likely to

opine at trial that the Settlement Class suffered little or no damages. As Courts have long

recognized, the substantial uncertainty as to which side’s experts’ view might be credited by the

jury presents a serious litigation risk. See IMAX, 283 F.R.D. at 193 (“[I]t is well established that

damages calculations in securities class actions often descend into a battle of experts.”); Telik,

576 F. Supp. 2d at 579-80 (in this “battle of experts, it is virtually impossible to predict with any

certainty which testimony would be credited, and ultimately, which damages would be found”);


16

In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. at 459 (“[P]roof of damages in securities

cases is always difficult and invariably requires expert testimony which may, or may not be,

accepted by a jury.”).

Given all of these risks with respect to liability, loss causation, and damages, Lead

Plaintiffs and Lead Counsel respectfully submit that it is in the best interests of the Settlement

Class to accept the certain and substantial benefit conferred by the Settlement.

5. The Risks of Maintaining Class Certification

Although class certification had not yet been briefed in this case, Defendants would

undoubtedly have raised vigorous challenges to class certification, and such disputes “could well

devolve into yet another battle of the experts.” Bear Stearns, 909 F. Supp. 2d at 268.

Additionally, class certification can be reviewed and modified at any time by the Court before

final judgment. See Fed. R. Civ. P. 23(c)(1)(C) (“An order that grants or denies class

certification may be altered or amended before final judgment.”). Although Lead Plaintiffs

believe there are strong grounds for certifying a litigation class, discussed in Lead Plaintiffs’

motion for preliminary approval of the Settlement (ECF Nos. 57-58), the Settlement avoids any

uncertainty with respect to class certification and risks of maintaining certification of the

Settlement Class through trial and on appeal. See Ebbert v. Nassau Cty., No. CV 05-5445 AKT,

2011 WL 6826121, at *12 (E.D.N.Y. Dec. 22, 2011) (risk of de-certification of the certified class

supported approval of Settlement); Ingles v. Toro, 438 F. Supp. 2d 203, 214 (S.D.N.Y. 2006).4

4 In the Preliminary Approval Order (ECF No. 65), the Court preliminarily certified the Settlement

Class for settlement purposes. There have been no developments in the case that would undermine that determination and, for all the reasons stated in the Lead Plaintiffs’ Memorandum of Law in Support of Unopposed to Motion for Preliminary Approval of Proposed Class Action Settlement (ECF Nos. 57-58), incorporated herein by reference, Lead Plaintiffs now request that the Court reiterate its prior certification of the Settlement Class pursuant to Fed. R. Civ. P. 23(a) and (b)(3), for settlement purposes, and the appointment of Lead Plaintiffs as Class Representatives and Labaton Sucharow as Class Counsel.


17

6. The Ability of Defendants to Withstand a Greater Judgment

The ability of a defendant to pay a judgment greater than the amount offered in

settlement is relevant to whether the settlement is fair. Grinnell, 495 F.2d at 463. Defendants’

precarious financial condition here, see Villegas Decl. ¶¶36-40, strongly weighs in favor of

approval of the Settlement. See, e.g., Maley, 186 F. Supp. 2d at 365 (“given Del Global’s dire

financial condition, it is unlikely that the Company could withstand a substantial judgment”); In

re Global Crossing Sec. & ERISA Litig., 225 F.R.D. at 460 (ability to withstand a greater

judgment supports final approval where the “main settlement funds available to the individuals

are the insurance proceeds” which “would be largely consumed by defense costs if this litigation

were to continue”); Teachers’ Ret. Sys. of La., 2004 WL 1087261, at *4 (likely depletion of D &

O insurance supports settlement approval).

Here, as set forth in the Villegas Declaration (¶¶36-40), in light of the dwindling

insurance available to Defendants and the competing claims to the proceeds of that insurance

arising from the Delaware Derivative Action, the Federal Derivative Action, the State Derivative

Action, the SEC investigation and the DOJ investigation, there was a very real possibility that

Lead Plaintiffs –even if they succeeded in continued litigation –would have recovered less than

the Settlement, or nothing at all, at the point of a judgment favorable to the Settlement Class,

given that Defendants would have no, or only very limited, insurance funds to satisfy the

judgment. In contrast, pursuant to the Stipulation, the $5,500,000 Settlement Amount has

already been deposited into the Escrow Account, and the Settlement Class is earning interest.

Prasker v. Asia Five Eight LLC, No. 08 Civ. 5811(MGC), 2010 WL 476009, at *5 (S.D.N.Y.

Jan. 6, 2010) (approving settlement and noting that “[t]he settlement eliminated the risk of

collection by requiring Defendants to pay the Fund into escrow…”). Accordingly, Defendants’

ability to withstand a greater judgment strongly weighs in favor of approval of the Settlement.


18

7. The Range of Reasonableness of the Settlement Amount in Light of the Best Possible Recovery and all the Attendant Risks of Litigation Support Approval of the Settlement

The last two substantive factors courts consider are the range of reasonableness of the

settlement fund in light of (i) the best possible recovery and (ii) litigation risks. In analyzing

these factors, the issue for the Court is not whether the settlement represents the best possible

recovery, but how the settlement relates to the strengths and weaknesses of the case. The court

“consider[s] and weigh[s] the nature of the claim, the possible defenses, the situation of the

parties, and the exercise of business judgment in determining whether the proposed settlement is

reasonable.” Grinnell, 495 F.2d at 462. Courts agree that the determination of a “reasonable”

settlement “is not susceptible of a mathematical equation yielding a particularized sum.” In re

PaineWebber Ltd. P’ships Litig., 171 F.R.D. 104, 130 (S.D.N.Y. 1997), aff’d, 117 F.3d 721 (2d

Cir. 1997). Instead, “in any case there is a range of reasonableness with respect to a settlement.”

Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972).

Here, according to analyses prepared by Lead Plaintiffs’ consulting damages expert, the

Settlement represents a recovery of between approximately 4.6% and 6.3% of the class’s highest

possible damages of approximately $87 million to $120 million, under a best case scenario

where Lead Plaintiffs were able to prove liability for the entire Class Period and liability with

respect to all alleged corrective disclosures. Villegas Decl. ¶5. This recovery falls well within

the range of reasonableness that courts regularly approve in similar circumstances. See, e.g., In

re Merrill Lynch & Co. Research Reports Sec. Litig., No. 02 MDL 1484 (JFK), 2007 WL

313474, at *10 (S.D.N.Y. Feb. 1, 2007) (approving $40.3 million settlement representing

approximately 6.25% of estimated damages and noting was at the “higher end of the range of

reasonableness of recovery in class actions securities litigation”); In re Merrill Lynch & Co.

Research Reports Sec. Litig., 246 F.R.D. 156, 167 (S.D.N.Y. 2007) (approving settlement that


19

was “between approximately 3% and 7% of estimated damages [and] within the range of

reasonableness for recovery in the settlement of large securities class actions”); In re Omnivision

Techs., Inc., 559 F. Supp. 2d 1036, 1042 (N.D. Cal. 2008) ($13.75 million settlement yielding

6% of potential damages was “higher than the median percentage of investor losses recovered in

recent shareholder class action settlements”); Int’l Bhd of Elec. Workers Local 697 Pension Fund

v. Int’l Game Tech., Inc., No. 3:09-cv-00419, 2012 WL 5199742, at *3 (D. Nev. Oct. 19, 2012)

(approving $12.5 million settlement recovering 3.5% of maximum damages and noting that the

amount is within the median recovery in securities class actions settled in the last few years).

The Settlement also presents a favorable recovery when compared to the median

settlement value in securities class actions in 2017, which was reported by Cornerstone Research

to be $5 million. See Laarni T. Bulan, Ellen M. Ryan, and Laura E. Simmons, Securities Class

Action Settlements – 2017 Review and Analysis, at 3 (Cornerstone Research 2018), Ex. 3.

In sum, the Grinnell factors support approval of the Settlement.

E. Application of the Factors Identified in the Amendments to Rule 23(e)(2) Support Approval of the Settlement as Fair, Reasonable, and Adequate

The proposed Settlement also meets the criteria set forth in the recent amendments to

Rule 23(e)(2), most of which are covered by the Second Circuit factors discussed above.

1. Lead Plaintiffs and Lead Counsel Have Adequately Represented the Settlement Class

There can be little doubt that Lead Plaintiffs and Lead Counsel have adequately

represented the Settlement Class.

As set forth in the previously filed motion for Preliminary Approval of the Settlement and

their motion seeking appointment as lead plaintiffs, Lead Plaintiffs, like all other members of the

Settlement Class, acquired shares of Celadon stock during the Class Period, when its value was

allegedly artificially inflated by false and misleading statements. Thus, the claims of the


20

Settlement Class would prevail or fail in unison, and the common objective of maximizing

recovery from Defendants aligns the interests of Lead Plaintiffs and all members of the

Settlement Class. See, e.g., In re Polaroid ERISA Litig., 240 F.R.D. 65, 77 (S.D.N.Y. 2006)

(“Where plaintiffs and class members share the common goal of maximizing recovery, there is

no conflict of interest between the class representatives and other class members.” Moreover,

Greater Pennsylvania provides pension benefits for thousands of beneficiaries across

Pennsylvania and has approximately $800 million in assets under management. See Ex. 1 at ¶1.

Lead Plaintiff ATRS is an extremely sophisticated institutional investor, which provides

retirement, disability, and survivor benefits to employees of Arkansas public schools and

educationally related agencies. See Ex. 2 at ¶1. Both have been appointed lead plaintiff in

numerous securities class actions and, with an informed understanding, agreed to the Settlement.

Additionally, throughout the Action, Lead Plaintiffs had the benefit of the advice of

knowledgeable counsel well-versed in shareholder class action litigation and securities fraud

cases. Labaton Sucharow is among the most experienced and skilled firms in the securities

litigation field, and has a long and successful track record in such cases. See Ex. 6-C.

2. The Settlement is the Result of Arm’s-Length Negotiations

As discussed in Section I.C., above, the Settlement was reached after arm’s-length

negotiations between counsel and overseen by an experienced Mediator. This factor clearly

supports approval of the Settlement.

3. The Relief Provided to the Settlement Class is Adequate

Section (i) of Rule 23(e)(2)(C), whether “the relief provided for the class is adequate,

taking into account the costs, risks, and delay of trial and appeal,” has been explained above.

Rule 23(e)(2)(C)(ii) considers whether the relief is adequate, taking into account the

“effectiveness of any proposed method of distributing relief to the class, including the method of


21

processing class-member claims.” As set forth below in Section II., discussing the proposed

Plan of Allocation, the proceeds of the Settlement will be distributed to Settlement Class

Members who submit valid and timely claims. The Claims Administrator will calculate

claimants’ Recognized Losses using the transactional information provided by claimants in their

Claim Forms, which can be mailed to the Claims Administrator, submitted online using the

settlement website, or, for large investors, with hundreds of transactions, via e-mail to the Claims

Administrator’s electronic filing team. Because most securities are held in “street name” by the

brokers that buy them on behalf of clients, the Claims Administrator, Lead Counsel, and

Defendants do not have Settlement Class Members’ transactional data and a claims process is

required. Because the Settlement does not recover 100% of alleged damages, the Claims

Administrator will determine each eligible claimant’s pro rata share of the Net Settlement Fund

based upon each claimant’s total “Recognized Claim” compared to the aggregate Recognized

Claims of all eligible claimants.

Once the Claims Administrator has processed all submitted claims, notified claimants of

deficiencies or ineligibility, processed responses, and made claim determinations, distributions

will be made to eligible claimants in the form of checks and wire transfers. After an initial

distribution of the Net Settlement Fund, if there is any balance remaining in the Net Settlement

Fund (whether by reason of tax refunds, uncashed checks or otherwise) after at least six (6)

months from the date of initial distribution, Lead Counsel will, if feasible and economical, re-

distribute the balance among eligible claimants who have cashed their checks. These re-

distributions will be repeated until the balance in the Net Settlement Fund is no longer feasible to

distribute. See Stipulation ¶ 26. Any balance that still remains in the Net Settlement Fund after

re-distribution(s), which is not feasible or economical to reallocate, after payment of any


22

outstanding Notice and Administration Expenses or Taxes, will be contributed to a non-sectarian,

not-for-profit charitable organization(s) serving the public interest, designated by Lead Plaintiffs

and approved by the Court.

The terms of any proposed award of attorneys’ fees, including timing of payment (Rule

23(e)(2)(C)(iii)), are discussed in Lead Counsel’s accompanying Fee and Expense Application.

Finally, Rule 23(e)(2)(C)(iv) asks the Court to consider the fairness of the proposed

Settlement in light of any agreement required to be identified under Rule 23(e)(3). The only

agreements made by the Parties in connection with the Settlement are the August 9, 2018 Term

Sheet, the Stipulation, and the confidential Supplemental Agreement, dated as of October 4,

2018, concerning the circumstances under which Defendants may terminate the Settlement based

upon the number of exclusion requests. See Stipulation ¶40. It is standard to keep such

agreements confidential so that a large investor, or a group of investors, cannot intentionally try

to leverage a better recovery for themselves by threatening to opt out, at the expense of the class.

The Supplemental Agreement can be provided to the Court in camera or under seal.

II. THE PLAN OF ALLOCATION FOR THE PROCEEDS OF THE SETTLEMENT IS FAIR AND REASONABLE AND SHOULD BE APPROVED

A plan for allocating settlement proceeds, like the settlement itself, should be approved if

it is fair, reasonable, and adequate. See IMAX, 283 F.R.D. at 192; Bear Stearns, 909 F. Supp. 2d

at 270. A plan of allocation with a “rational basis” satisfies this requirement. FLAG Telecom,

2010 WL 4537550, at *21; In re Initial Pub. Offering Sec. Litig., 671 F. Supp. 2d at 497. A plan

of allocation that reimburses class members based on the relative strength and value of their

claims is reasonable. See IMAX, 283 F.R.D. at 192. However, a plan of allocation does not need

to be tailored to fit each and every class member with “mathematical precision.” PaineWebber,

171 F.R.D. at 133.


23

Here, the proposed Plan of Allocation, which was developed by Lead Counsel in

consultation with Lead Plaintiffs’ consulting damages expert, provides a fair and reasonable

method to allocate the Net Settlement Fund among class members who submit valid Claim

Forms. The Plan is set forth in full in the Notice. See Ex. 5-B at pp. 10-16. It provides for the

distribution of the Net Settlement Fund based upon each Settlement Class Member’s

“Recognized Loss,” as calculated by the formulas described in the Notice. In developing the

Plan, Lead Plaintiffs’ expert considered the amount of artificial inflation in the per share prices

of Celadon common stock that allegedly was proximately caused by Defendants’ alleged false

and misleading statements and omissions. ¶¶54-58; Ex. 5-B at ¶51. Lead Plaintiffs’ expert

calculated the estimated artificial inflation by considering share price changes in reaction to

public disclosures.

Epiq, as the Court-approved Claims Administrator, will determine each Authorized

Claimant’s pro rata share of the Net Settlement Fund based upon each Authorized Claimant’s

total Recognized Loss compared to the aggregate Recognized Losses of all Authorized

Claimants, as calculated according to the Plan of Allocation. A claimant’s total Recognized

Losses will depend on, among other things, when their shares were purchased and/or sold during

the Class Period in relation to the disclosure dates alleged in the Action, whether the shares were

held through or sold during the statutory 90-day look-back period, see 15 U.S.C. § 78u-4(e)

(providing methodology for limiting damages in securities fraud actions), and the value of the

shares when they were sold or held. Accordingly, the proposed Plan of Allocation is designed to

fairly and rationally allocate the proceeds of this Settlement among the Settlement Class.

For these reasons, Lead Counsel believes that the Plan of Allocation provides a fair and

reasonable method to equitably allocate the Net Settlement Fund. See In re Giant Interactive


24

Grp., Inc. Sec. Litig., 279 F.R.D. 151, 163 (S.D.N.Y. 2011) (“[i]n determining whether a plan of

allocation is fair, courts look primarily to the opinion of counsel”); In re Marsh ERISA Litig.,

265 F.R.D. 128, 145 (S.D.N.Y. 2010) (same). Moreover, as noted above, as of December 10,

2018, 32,458 copies of the Notice, which contains the Plan of Allocation and advises Settlement

Class Members of their right to object to the proposed plan, have been sent to potential

Settlement Class Members and their nominees, see Ex. 5 ¶10, and, to date, no objections to the

proposed plan have been received. ¶59.

III. NOTICE TO THE CLASS SATISFIED THE REQUIREMENTS OF RULE 23 AND DUE PROCESS

Lead Plaintiffs have provided the Settlement Class with notice of the proposed Settlement

that satisfied all the requirements of Rule 23(e) and due process, which require that notice of a

settlement be “reasonable”—i.e., it must “fairly apprise the [prospective] members of the class of

the terms of the proposed settlement and of the options that are open to them in connection with

the proceedings.” Visa, 396 F.3d at 114. Both the substance of the Notice and the method of its

dissemination to potential members of the Settlement Class satisfied these standards.

The Notice provided all of the necessary information for Settlement Class Members to

make an informed decision regarding the Settlement, the Fee and Expense Application, and the

Plan of Allocation. The Notice informed Settlement Class Members of, among other things: (1)

the amount of the Settlement; (2) the reasons why the Parties are proposing the Settlement; (3)

the estimated average recovery per affected share of Celadon common stock; (4) the maximum

amount of attorneys’ fees and expenses that will be sought; (5) the identity and contact

information for the representatives of Lead Counsel who are reasonably available to answer

questions from Settlement Class Members concerning matters contained in the Notice; (6) the

right of Settlement Class Members to object to the Settlement; (7) the binding effect of a


25

judgment on Settlement Class Members; and (8) the dates and deadlines for certain Settlement-

related events. See 15 U.S.C. § 78u-4(a)(7). The Notice also contained the Plan of Allocation

and provided Settlement Class Members with information about how to submit a Claim Form in

order to be eligible to receive a distribution from the Net Settlement Fund.

On October 26, 2018, Epiq began mailing copies of the Notice and Claim Form via first-

class mail to potential Settlement Class Members that could be identified through reasonable

effort, in accordance with the Preliminary Approval Order. See Ex. 5 ¶¶3-11. In addition, Epiq

caused the Summary Settlement Notice to be published in Investor’s Business Daily and to be

released over the internet using PRNewswire on November 5, 2018. Id. ¶12. Epiq also created

the website for this case, www.CeladonGroupSecuritiesLitigation.com, to provide members of

the Settlement Class and other interested persons with information about the Settlement and the

applicable deadlines, as well as access to copies of the Notice, the Claim Form, Stipulation, and

the Preliminary Approval Order, Ex. 5 ¶16, and Lead Counsel posted copies of the Notice and

Claim Form on its website, Villegas Decl. ¶51.

This combination of individual first-class mail to those who could be identified with

reasonable effort, supplemented by notice in an appropriate publication, transmitted over a

newswire, and set forth on internet websites, was “the best notice . . . practicable under the

circumstances.” Fed. R. Civ. P. 23(c)(2)(B); see, e.g., In re Marsh & McLennan Cos. Sec. Litig.,

No. 04 Civ. 8144 (CM), 2009 WL 5178546, at *12-13 (S.D.N.Y. Dec. 23, 2009).

CONCLUSION

For the foregoing reasons, Lead Plaintiffs respectfully request that the Court approve the

proposed Settlement as fair, reasonable, and adequate and approve the Plan of Allocation as fair,

reasonable, and adequate. Proposed orders will be submitted with Lead Plaintiffs reply papers,

after the deadline for objections has passed.


26

Dated: December 12, 2018 Respectfully submitted,

LABATON SUCHAROW LLP /s/ Carol C. Villegas Carol C. Villegas Alec T. Coquin 140 Broadway New York, New York 10005 Telephone: 212-907-0700 Facsimile: 212-818-0477 [email protected] [email protected] Lead Counsel for Lead Plaintiffs and the Class BLOCK & LEVITON LLP Jason Leviton 155 Federal Street, Suite 400 Boston, MA 02110 Telephone: (617) 398-5600 Facsimile: (617) 507-6020 Email: [email protected] Additional Counsel for Lead Plaintiffs and the Class


CERTIFICATE OF SERVICE

I hereby certify that on December 12, 2018, I caused the foregoing Memorandum of Law

in Support of Lead Plaintiffs’ Motion for Final Approval of Class Action Settlement and

Approval of Plan of Allocation to be served electronically through the Court’s ECF system upon

all registered ECF participants.

/s/Carol C. Villegas Carol C. Villegas


united states district court southern district of … · 2020-01-08 · united states district...

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